Quiz: Business Models for Digital Finance

Question 1

Metcalfe's Law states that the value of a network with n users scales as:

(A) V ∝ n²
(B) V ∝ n
(C) V ∝ log(n)
(D) V ∝ √(n)

Answer: (A) each new user adds value to all existing users; value grows quadratically

Question 2

In a two-sided market, which side is typically subsidised?

(A) The larger side
(B) The side generating more revenue
(C) The harder-to-acquire, price-sensitive side
(D) The side that already generates the highest revenue per user, since platforms prefer to subsidise their most profitable segment

Answer: (C) Platforms subsidise the side that drives network effects for the other

Question 3

Coinbase charges retail users a 0.50% spread AND a \0.99 flat fee on a \1,000 trade. Total fee?

(A) \4.99
(B) \5.00
(C) \9.99
(D) \5.99

Answer: (D) \5.00 + \0.99 = \5.99

Question 4

Coinbase Professional charges 0.06-0.40% while retail Simple charges 0.50-1.49%. This pricing is an example of:

(A) Price discrimination by segment
(B) Cost-plus pricing
(C) Marginal cost pricing
(D) Uniform pricing that applies the same fee structure to retail and institutional customers regardless of volume or price sensitivity

Answer: (A) Institutional segment (price-sensitive) subsidised; retail segment charged full margin

Question 5

The "cold-start problem" describes:

(A) The difficulty of reaching network critical mass when starting from zero users
(B) Protocol downtime during peak demand
(C) High gas costs on Ethereum
(D) Revenue declines that persist as platforms struggle to rebuild liquidity during prolonged bear markets with low volatility

Answer: (A) New networks have V(0) = 0; better products cannot overcome this without bootstrapping

Question 6

Coinbase's revenue fell approximately 60% in 2022. The main reason was:

(A) SEC regulatory fine
(B) Hack and customer fund loss
(C) Crypto market downturn reducing trading volume
(D) DEX competition from Uniswap and other automated market makers permanently capturing retail order flow through lower fees and permissionless access

Answer: (C) 75%+ of revenue was transaction fees; bear market = minimal trading

Question 7

Which asset is Coinbase's PRIMARY competitive moat (not its exchange engine)?

(A) A proprietary high-frequency matching engine that executes trades in microseconds, reducing latency and improving fill rates for institutional clients
(B) Lower fees than DEXs
(C) BTC custody technology
(D) 10 years of regulatory licences + brand trust

Answer: (D) Regulatory approval takes 3-10 years; code can be copied in weeks

Question 8

Circle holds \40B in USDC reserves at a 4% Fed Funds rate. Gross annual yield?

(A) \400M
(B) \800M
(C) \1.6B
(D) \4.0B

Answer: (C) 40 × 0.04 = 1.6

Question 9

In Circle's model, who receives the yield earned on USDC reserves?

(A) USDC holders receive 50%, Circle receives 50%
(B) Circle receives all yield
(C) USDC holders receive all yield
(D) Yield is burned to support the peg

Answer: (B) Circle keeps 100% of yield; this is the seigniorage model

Question 10

In March 2023, USDC temporarily de-pegged. The cause was:

(A) A catastrophic smart contract vulnerability that enabled attackers to drain reserves through coordinated flash loan attacks across multiple DeFi protocols simultaneously
(B) \3.3B of reserves stuck in the failed Silicon Valley Bank
(C) Regulatory seizure by the SEC
(D) Mass redemption exceeding reserves

Answer: (B) Reserve composition risk: SVB failure temporarily blocked \3.3B redemption

Question 11

Uniswap generates over \500M/year in LP fees. The UNI token captures:

(A) 100%, with all trading fees automatically distributed to UNI governance wallets on a pro-rata basis according to each holder's staked share
(B) 50%
(C) 10%
(D) Approximately 0% - fee switch not yet activated

Answer: (D) All LP fees go to liquidity providers; UNI holders receive no direct share as of 2025

Question 12

SushiSwap forked Uniswap V2 and initially attracted \1B in liquidity via higher yield incentives ("vampire attack"). Long-run outcome:

(A) Uniswap recovered dominance; its liquidity moat reasserted
(B) Both converged to equal volume
(C) SushiSwap permanently surpassed Uniswap
(D) Uniswap was forced to shut down after a governance attack enabled a hostile takeover, with all liquidity migrating to competing forks within 48 hours

Answer: (A) Liquidity returned because traders preferred Uniswap's deeper pools

Question 13

Uniswap V4 "hooks" allow:

(A) Users to bypass gas fees
(B) Custom logic executed before/after each swap, enabling protocol differentiation
(C) UNI holders to vote on individual trade parameters
(D) Operators to implement personalised dynamic fee structures that vary by wallet address, trading history, and on-chain reputation score assessed at execution time

Answer: (B) Hooks make Uniswap extensible but do not directly change the fee model

Question 14

Binance's BNB utility loop works because:

(A) BNB is legally mandated by Binance's internal compliance rules and must be held by all traders above \10,000 monthly volume to satisfy anti-money-laundering reporting thresholds
(B) BNB is pegged to USDT at a fixed rate
(C) Binance burns BNB only when profits are negative
(D) Users buy BNB for fee discounts, increasing demand and price, which attracts more users

Answer: (D) Self-reinforcing flywheel: fee discounts drive BNB demand drives price appreciation

Question 15

Binance's 2023 DOJ settlement total was \4.3B. This represented approximately how many years of regulatory arbitrage savings?

(A) 1 year
(B) 3-4 years
(C) 10 years
(D) 20 years

Answer: (B) Coinbase compliance costs \450M/year more; \4.3B \450M ≈ 9.6 years (upper estimate)

Question 16

Which of the following is the LEAST forkable competitive moat?

(A) Smart contract code that can be deployed as a fork by any developer within hours, using freely available templates from open-source repositories and automated audit services
(B) Token emission schedule
(C) Front-end user interface
(D) Regulatory banking licence

Answer: (D) requires years of legal compliance, not a code copy

Question 17

A neobank earns 37% of revenue from subscriptions, 28% from interchange, 12% from crypto. If crypto were banned, what fraction of revenue would remain?

(A) 0%
(B) 12%
(C) 65%
(D) 88%

Answer: (D) 100% - 12% = 88%; crypto is a feature, not the foundation

Question 18

The 6-question cryptoeconomics lens is most useful for identifying:

(A) The market capitalisation of a protocol
(B) The specific programming language and framework used to implement smart contracts, which determines tooling compatibility and the available developer talent pool
(C) The failure mode hidden in an incentive design
(D) The regulatory jurisdiction of a company

Answer: (C) Question 4 (failure mode) and Question 2 (incentives) together reveal the stress point

Question 19

Yield-bearing stablecoins like Ondo USDY threaten Circle because:

(A) They pass reserve yield to holders, eroding the zero-yield assumption USDC relies on
(B) They are faster to transfer than USDC
(C) They have lower collateral requirements
(D) They are issued by the Federal Reserve and carry an explicit US government guarantee, protecting holders against de-peg events and systemic stablecoin risk

Answer: (A) If holders can earn 4-5% holding USDY vs 0% holding USDC, seigniorage model is at risk

Question 20

According to the lecture's durability matrix, which builds a moat in years, not decades?

(A) Regulatory licence
(B) Brand trust
(C) Liquidity pool depth
(D) Code quality and engineering craftsmanship, which any well-funded competitor can replicate by hiring experienced developers or commissioning security audits within a single product cycle

Answer: (C) 6-18 months to build significant liquidity; faster than licences but slower than code